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Sunday, January 9, 2011

In which IT Sector stocks should you invest?

The IT Sector had been one of the star performers in 2010. With the US and Eurozone economies showing signs of recovery, it is expected that the sector will perform well in 2011 also. A performing sector doesn’t mean all the companies in the sector are worth investing in. Some stocks are leaders; some are laggards. Some are just not getting anywhere.

Here are the chart patterns of 10 IT sector stocks – including the four big guys and a few mid-caps. With demand for experienced manpower on the rise, the problem of attrition is causing concern. The big guys with their geographically spread out operations in different verticals is better able to manage attrition than the smaller players.

TCS

TCS_Jan11

TCS is the jewel in the crown of the IT sector, and has been in a raging bull market, touching new highs on a regular basis. After a decent correction during Mar-May ‘10, when the stock almost fell to the 200 day EMA, the stock touched a lower bottom, but the RSI made a bullish higher bottom. For the past month, it has been in a consolidation mode with an upward bias. The stock is at an all-time high, so caution is advised. The RSI and slow stochastic are showing negative divergences. Hold. Add on a slightly deeper correction.

Infosys

Infosys_Jan11

The Infosys stock is also in a strong bull market, touching higher tops and bottoms for the past 12 months. The correction during Apr-May ‘10 touched a higher bottom. Both the RSI and slow stochastic have fallen sharply from their overbought zones. The correction may continue for a while longer. Hold, and add the dips.

Wipro

Wipro_Jan11

Wipro is also in a bull market, but the Oct ‘10 high has not been breached yet. The stock is showing some weakness near its previous high, and a bearish double-top pattern may be forming. Wipro has never quite been in the same league as TCS and Infosys. It is reflected in the stock’s performance. Book partial profits.

HCL Tech

HCL Tech_Jan11

HCL was an established company when Infosys first appeared on the scene. Somehow, their head-start in the small computer manufacturing and marketing field could not be leveraged into leadership in the software services field. That doesn’t mean that their stock is doing badly. It is in a bull market, and has given decent returns in the past 12 months. Can be added on dips.

Oracle Financials

Oracle Fin_Jan11

The Oracle name hasn’t changed the fortunes of the original iFlex. Though the stock is technically in a bull market (trading above a rising 200 day EMA), it has traded in a sideways range for the past year and has given negative returns to shareholders. Switch.

MPhasis

Mphasis_Jan11

Mphasis hit a peak in Feb ‘10, fell well below the 200 day EMA, and has since been oscillating around its long-term moving average. The stock has given negative returns to its shareholders in the past year. Switch.

Tech Mahindra

Tech Mahindra_Jan11

Tech Mahindra is trading below its falling 200 day EMA, making lower tops and bottoms and is technically in a bear market. The British Telecom connection has broken and the Satyam amalgamation will be a heavy cross for investors to bear. Avoid.

Mindtree

Mindtree_Jan11

The Mindtree stock is not going anywhere. It is making an effort to move above its 200 day EMA, but is trading within a bearish pattern of lower tops and bottoms. Not quite as bearish as Tech Mahindra, but an ‘avoid’.

KPIT Cummins

KPIT Cummins_Jan11

The KPIT Cummins stock dropped like a stone below its 200 day EMA back in May ‘10. It recovered sharply to double in value in Aug ‘10. It has been in a down trend ever since, and is about to drop into a bear market. Sell.

Tata Elxsi

Tata Elxsi_Jan11

Tata Elxsi touched a high-volume peak in Mar ‘10, and has been oscillating around its 100 day EMA since then. Shareholders have got no returns. The stock is technically in a bull market, but the chart pattern does not inspire any confidence. Hold.

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